Wednesday, October 12, 2016

In a move that has sparked deep
concern among the multinationals doing business in Indonesia, Jakarta is going
after Google Asia Pacific to try to force the communications giant to pay
hundreds of millions of dollars in taxes. Other tech giants may be under
fire as well.

The government alleges Google has obtained hefty revenue from Indonesian
advertisers without paying property taxes. Special Tax Officers in
Jakarta confirmed that investigators had visited Google’s office in the capital
city as part of an investigation into the company’s suspected refusal to
undergo a state audit of its tax obligations.

The tax office alleges PT Google Indonesia only paid less than 0.1
percent of the income and value-added taxes it owed last year.

Google, Jakarta warned, could face criminal charges on audit refusal as
stipulated in the 2009 Tax Law if investigators find sufficient evidence.

Tax investigators are also seeking information about whether Google
established a permanent establishment, known as a local legal entity, or BUT,
the Indonesian language acronym, as the tax office plans to collect back taxes
from revenue Google has generated over the past five years.

Muhammad Haniv, the head of special taxpayers at the Finance Ministry,
did not specify the amount of Google’s unpaid income and value-added taxes for
the five-year period, but said the firm could be subject to fines of up to Rp
5.5 trillion (US$418 million) for 2015 alone.

“If Google generates income from Indonesia, it has to pay taxes. It is
immoral if Google refuses to do so,” Haniv was quoted as saying by The
Jakarta Post.

Earlier this year, the Minister of Communications and Information
Technology Rudiantara had warned that the Indonesian government will soon
require messaging services and global providers of online content to
establish BUTs and start paying tax. Companies that fail to comply with the new
policy would have their services blocked, according to local media reports.

YouTube, Netflix, WhatsApp and Apple Music are among such services.
These services use internet or bandwidth provided by Indonesian
telecommunication companies as their infrastructure but do not pay tax or
service fees to the Indonesian government or the internet providers.

“There will be punishment if they don’t comply. We can just block them
from the operators,” Rudiantara was quoted as saying by Bisnis.com, adding
that the government policies in the telecommunications sector had been too
lenient.

The minister said the new policy will not only protect consumers
but also increase tax revenue. He pointed out that in 2015 revenue from digital
advertising was worth US$430 million.

State-owned telecommunications and internet provider Telekomunikasi
Indonesia (Telkom) blocked Netflix from all of its platforms in January this
year soon after the US online movie provider announced an international rollout,
triggering criticism from Indonesian users.

Indonesia has been struggling to find alternative sources of state
revenue as the biggest economy in the region is affected by the global economic
slowdown and plunging energy prices. The government’s ongoing tax amnesty
program is expected to help mend the widening state-budget deficit, with
tax-revenue realization accounting for less than half of the 2016 target.

The government estimated that total internet advertising revenue could amount
to around US$820 million a year, 70 percent of which was made by Google, whose
video-sharing site YouTube has become an increasingly popular outlet for
advertisers to air their commercials.

Finance Minister Sri Mulyani said Indonesia is committed to hunting down
both Google and OTT companies alike to force them to comply with local tax
regulations.

Google said it would continue to cooperate with the Indonesian
authorities, but claimed that it had complied with all tax regulations in the
country.

Center for Indonesia Taxation Analysis (CITA) executive director
Yustinus Prastowo, said Indonesia had two options to resolve the Google
conundrum, either extend the definition of a BUT or implement a regulation akin
to that of the UK’s Google Tax, which targets offshore profits.

“Extending the BUT definition can be done by declaring that a virtual
presence is considered to be an entity,” Yustinus said as quoted by The Jakarta
Post.